China seeks to import up to one million tonnes of corn

China's state-run and private trading companies are seeking to import up to one million tonnes of corn to ensure cheaper supply in south China, according to traders.

 

While it makes sense to import cheaper corn from the international market to supply the southern region, it is still unclear if the government is open to the idea of large-scale imports which will drive down domestic prices and hit farm incomes in major corn growing areas in the country.

 

 

But one of the state-run Chinese grain trading companies has taken long positions on the Chicago Board of Trade even though the company is still seeking import licenses from the government, a trading executive said.

 

The CBOT positions are seen by many as hedging ahead of actual imports, which may eventually be sourced within Asia, traders said.

 

However, talk of potential Chinese demand has revived interest in corn futures. CBOT's May corn futures contract ended 10 cents higher Wednesday (Apr 7) at US$3.56 1/2 a bushel, after steadily falling since the start of this year.

 

Some international trading companies are also trying to get corn import licenses in China after the recent decline in global prices, traders said.

 

"China's domestic prices are higher than international prices and therefore traders want to take advantage of the arbitrage," said a Singapore-based commodities analyst.

 

It is now cheaper to import corn in Southern China than move large volumes of domestic corn from the northern parts of the country, as is the usual trend every year.

 

With parts of China hit by a drought, imports will also help cool domestic prices, traders said.

 

The state-run company plans to seek feed grade cargoes of 10,000 tonnes to 20,000 tonnes each, for a few hundred thousand tonnes, mostly from Thailand, Laos and Myanmar, traders said. However, supplies are also limited in Thailand due to strong local demand.

 

It is cheaper for China to import corn from the US, available around US$225-US$230/tonne, basis cost and freight, but such a decision is also fraught with risks.

 

In the domestic market, corn is currently trading at US$255/tonne in Jilin and at US$279/tonne in Dalian.

 

Traders said although there is a RMB140/tonne (US$21) difference in prices, stringent quality and quarantine rules may discourage aggressive imports.

 

The government may also be reluctant to give licenses for large-scale imports because of ample domestic stocks, said a Singapore-based executive at a global trading company.

 

China had 53.17 million tonnes of corn at the end of the 2008-09 marketing year, up sharply from 39.39 million tonnes a year earlier, according to the data published by the USDA

 

Supplies are expected to fall to 48.77 million tonnes by the end of the current marketing year to September, but that is still considered a comfortable level.

 

To fulfil market access commitments made to the World Trade Organisation, China annually issues corn import quotas for 7.2 million tonnes out of which 60% is reserved for state-owned companies but is rarely utilised due to ample local supply.